Battle of the ISAs commences?

10th February 2012

Every year at about this time, Banks and Building Societies start to introduce tempting ISA morsels to try and encourage us to use it before we lose it! I am of course talking about the ISA allowance which in the current tax year is £5,340 but from 6th April 2012 is increasing to £5,640. So for those of you who haven’t yet used your allowance, or if you are thinking of switching some old accounts that are looking a bit shabby, here’s a run-down of the activity so far. 

Cheshire Building Society (now part of Nationwide) launched a new variable rate ISA which just tops the best buy tables.  The account named Direct Cash ISA pays 3.06% AER tax free and beats the current leader, the AA, which pays 3.05% AER on its Internet Access ISA.  The new account from the Cheshire is available on a minimum of £1,000 and comes with a 2.06% fixed bonus until the 30 September 2013.  The underlying rate is just 1.00%, so don’t forget to sign up to our Rate Tracker service to monitor when the rate drops.  This account is only available for new ISA subscriptions so won’t accept transfers in from other ISA providers.

NatWest, on the other hand really wants your transferred ISA money.  So much so that it is offering preferential rates of interest to customers on the condition that the money has come from an ISA transferred from another provider. You can also transfer your existing NatWest and RBS ISAs, but the preferential rates are only available provided this is in addition to an external transfer.  So what about the rates on offer?  Well they’re pretty good.  The one year Fixed Rate ISA (preferential rate) offers 3.35% AER, the two year Fixed Rate ISA (preferential rate) offers 3.90% AER and the three year Fixed Rate ISA (preferential rate) offers 4.20% AER.

Virgin Money and Santander have both launched one and two year fixed rate ISAs this month, however both are underwhelming.  With rates of up to 3% fixed for one year for both Virgin and Santander, and 3.30% and 3.50% respectively for the two year terms, it’s clear you can get better rates elsewhere.

And yesterday saw the launch of Marks & Spencer’s latest ISA offering.    The M&S Advantage Cash ISA pays a variable rate of 3.00% AER tax free, if you need penalty free instant access to your money and if you’re happy to invest a minimum of £100 lump sum or £25 a month by direct debit.  There is also a fixed rate option which is available on a minimum of £500, with terms of one year paying 3.25% AER, two years paying 3.50% AER and three years paying 3.75% AER.  All accounts are also available for ISA transfers which should make these even more appealing.

So does this mark the start of the official ISA season? I don’t think so as we’ve really yet to see all the major players enter the market (usual suspects Barclays and Santander).  However Cheshire has set the tone, beating the current best variable ISA rates, NatWest has swept in with some cracking rates for ISA transfers, and M&S has joined the ranks of clean (no bonus) best buys so at least things are looking promising.  And if industry mumblings are to be believed we may have some interesting and competitive rates this ISA season, so watch this space.  We’ll keep you in the loop!

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